The
idea of reaping the 'windfalls' in land values due to planning decisions
is by no means new. The underlying rationale is that much of the value
of real property is created not by the landowner’s work, but by
government policies that grant development rights or by broad economic
and social trends. Governments need the funds collected for financing
public services of various kinds.

This paper opens with the
conceptual debate about value capture and its rationale, presenting the
positions of proponents as well as critics. Drawing on the author’s
comparative research on the laws and practices in 13 advanced-economy
countries around the world, the paper then addresses the degree to which
recapture of the “unearned increment” from planning decisions is indeed
a viable approach. Should policymakers adopt it for financing or
incentivizing the delivery of public services and affordable housing?

Only
three countries among the 13 have adopted laws and policies about value
capture at some point in their history. What lessons may be learned
from their experiences? The findings show that the idea of value capture
in its pure form has failed to catch on widely among advanced
economies, with only a few exceptions. However, the basic idea of the
“unearned increment” as a financial source for public services has not
died away. In recent decades, several “mutations" of this idea have been
gaining popularity in many countries, but in widely different forms and
degrees. I call these "indirect modes" of value capture. These are much
more complex and less “elegant” than the direct value-capture notion,
and present legal and public-policy challenges. Yet in some contexts,
these modes are more realistic instruments for funding public services.

The
paper concludes with a set of assumptions (for further research) about
the legal-administrative conditions for the successful application of
the indirect modes of value capture. These are still lacking even in
some advanced-economy countries.